1          Introduction

The Digital Britain Report (the Report), published in June 2009 by the Department for Business Innovation & Skills and the Department for Culture Media and Sport, formed part of an initiative by the former Government to address various issues arising as a result of the revolution from analogue to digital technology with the objective of ensuring that the UK is well placed within the digital economy and that it continues to be a leading venue for the creation and commercial exploitation of digital content.

One of the issues that the Report specifically recognised was the need to address the impact of the transition from analogue to digital on the traditional public service broadcasting model[1].

2          Traditional Public Service Broadcasting Obligations

Under section 265 of the Communications Act 2003 (CA 2003), certain broadcasters including the BBC, ITV, Channel 4, Channel 5 and Teletext are obliged to fulfil a public service remit.

Section 264(4) of the CA 2003 sets out the purposes of public service television broadcasting in the United Kingdom, which are to provide relevant television services:

• which ensure that programmes dealing with a wide range of subject-matters are made available for viewing;
• in a manner which (having regard to the days on and times of day at which they are shown) is likely to meet the needs and satisfy the interests of as many different audiences as practicable;
• which (taken together and having regard to the same matters) are properly balanced, so far as their nature and subject-matters are concerned, for meeting the needs and satisfying the interests of the available audiences; and
• which (taken together) maintain high general standards with respect to the programmes included in them, and, in particular with respect to (i) the contents of the programmes; (ii) the quality of the programme making; and (iii) the professional skill and editorial integrity applied in the making of the programmes.

Under the provisions of the CA 2003, Ofcom must review and report on the extent to which the public service broadcasters (PSBs) have fulfilled the purposes of public service broadcasting every five years, and make recommendations with a view to maintaining and strengthening the quality of public service broadcasting in the future.

Ofcom completed its second PSB review in January 2009.  Both this Review and the Report recognised that increased competition from new media has impacted traditional broadcasters by contributing to audience fragmentation and a consequent reduction in advertising revenue, which has historically subsidised public service content.  As a result, the burden of carrying out public service broadcasting obligations has increased and PSBs have been struggling to sustain the traditional models of providing a full range of public service genres through television commissions.

The Report also recognised that, although much of the debate about public service content still focuses primarily on broadcasting, in fact much public service content now comes from a much wider range of sources including museums, libraries and galleries from around the country, who have become their own commissioners and distributors, and have been able to successfully reach the public audience by way of the subscription-funded market, both online and on-air.

3          Potential Solutions put forward in the Report

One of the objectives of the Report was therefore to consider how these challenges facing the PSBs might be alleviated.

It was acknowledged that the BBC has been able to make headway into the online and on-demand world, largely due to the secure and significant funding stream which it benefits from by way of the TV Licence Fee, and it stressed the importance for this market intervention to continue in order that a strong and independent BBC is maintained and may continue as a “gold standard” for British media.

In terms of the other traditional PSBs, the Report confirmed Channel 4 Corporation (C4C) to have a key role to play in providing a balancing mix of public service content along with the BBC on the basis that it: is publicly-owned; it is a major commissioner of independent content from across a wide range of producers; and it has already launched itself into the online world by virtue of 4IP - the fund set up between C4C and a series of development and media agencies from around the UK to provide new investment in public service digital media for audiences in the UK.  In order to enable C4C to continue to play this key role, the Report proposed that C4C’s statutory remit under the CA 2003 be updated.  The former Government also looked at various ways of securing long term and stable financial footing for Channel 4, the most widely discussed of which being a joint venture between C4C and BBC Worldwide.  However, discussions regarding any potential partnership between C4C and BBC Worldwide have not been successful to date.

The Report also addressed the range of public service content in which there were emerging gaps in market provision, such as content for older children and regional and local news.  In relation to the provision of news content, the Report commented on the danger of large parts of the UK being left without professionally verified sources of information as a result of increased financial pressure on news publishers.  It was recognised that although publishers may be able to successfully explore the potential of more sustainable multi-media platforms and technologies, it is likely that these new models will have to be supplemented by independent public finance.  Under the Report the former government therefore proposed that it would consult openly on the option of a ‘contained contestable element’ of the BBC’s Licence Fee to fund pilots of independently financed news consortia (IFNCs) - a joining of interested parties who would provide an independent stream of multi-media and broadcast news using Channel 3 Licensees’ broadcast regional news slots as one means of distribution - before 2012.

In the context of public service broadcasting, the Report also recognised the declining value of the existing public service Channel 3 licences as a result of the Digital Switchover.  It was acknowledged that a strong case existed for the progressive liberalisation of the Channel 3 licensees, so that they can move towards becoming fully commercial networks whilst continuing to deliver a sustainable public service function.  Indeed, at ITV’s recent annual Parliamentary Reception, ITV’s Chairman Archie Norman voiced his concern over the industry’s regulatory system, calling it “archaic” and referring to the need to update regulation to enable ITV to “continue to invest in quality drama, sports and entertainment programming”.

The regulatory regime for Channel 5 licences was also expected to follow a similar path.  In the Report, the former Government stated that it would be willing to consider legislative change if adjustments beyond Ofcom’s current powers were considered necessary.

4          Legislative Change following the Report

In November 2009, the former Government introduced the Digital Economy Bill with the purpose of giving effect to those proposals in the Report which required primary legislation.  On 8 April 2010, the Bill was passed by the House of Commons in the “wash up” procedure, being that short period after the general election has been announced but before the dissolution of Parliament when all unfinished Parliamentary business must be dealt with.  A number of controversial amendments were made in order to pass the Bill more quickly than usual in this last minute bargaining process and it received Royal Asset in the form of the Digital Economy Act 2010 (the DEA) shortly thereafter.

5          New Remit for C4C

In order to effect the Report’s focus on positioning C4C as a multi-media public service counterpoint to the BBC, the DEA (sections 22 to 23) amends the CA 2003 by inserting a new section 198A which gives C4C new functions to participate in making of a broad range of relevant ‘high quality’ media content and the broadcasting or distribution of such content by means of various different types of electronic distribution platforms.  In addition, the DEA obliges C4C to engage in the making of news and current affairs content, content for older children and young adults and the making, broadcasting and distribution of high-quality films for cinema.

This extended remit formally acknowledges C4C’s role in funding UK film-making for the first time and provides some welcome additional protection for C4C’s commitment to the British film industry in this regard.  As a result, C4C has increased the budget of its movie production arm, Film4, by 20% to £10m, meaning that its budget for film development and financing is returned to the level it was before the economic downturn.

Section 23 of the DEA amends the CA 2003 further to require C4C to prepare an annual statement of media content policy with regard to the discharge of its duties in relation to its extended remit and gives Ofcom monitoring and enforcement duties in relation to C4C’s new media content duties.

6          Flexibility for Commercially Funded Public Service Television Broadcasters

The provisions of sections 24 to 29 and section 37 of the DEA are targeted at easing the public service burden on Channel 3 and Channel 5 licensees to enable them to compete better with digital channels and content providers on other media platforms who do not have public service obligations.

Sections 24 to 29 make amendments to the Broadcasting Act 1990 and the CA 2003 to introduce flexibility into the licence processes for the commercially funded public service television broadcasters.  In particular, section 24 removes the restriction on providing a single Channel 3 service for the whole of England or the whole of Scotland (although there must be at least one licence area wholly contained within Scotland) and gives Ofcom the flexibility to renew Channel 3 licences for a larger or smaller area than the area to which they related before renewal.  Section 25 allows different expiry dates to be set for Channel 3, Channel 5 and public teletext licences and allows the Secretary of State more flexibility to extend the duration of licences where appropriate.  Section 37 of the DEA amends section 263(4) CA 2003 to allow the Secretary of State to exclude conditions in the licence of any service for a limited period of time, or reintroduce them again, if appropriate.

7          Main differences between the Digital Economy Bill and the DEA

As mentioned above, the DEA incorporates a number of last minute changes to the original Digital Economy Bill, as a result of the Parliamentary “wash up” procedure.  In terms of public service broadcasting, the significant difference between the provisions of the new DEA and those envisaged by the original Bill (clause 28) was the power of Ofcom to appoint and fund providers of regional or local news or IFNCs.  These provisions were dropped from the final form of the Bill and are therefore absent from the DEA.  The pilot IFNC programme which, as mentioned above, had previously been put forward by the former Government in the Report, was also dropped.

8          Looking ahead…

Although it was largely expected that the DEA would be reviewed by the new Government in light of the last minute amendments which were made to the Bill, the initial coalition agreement which was published by the Conservatives and the Liberal Democrats on 12 May 2010 did not address this point and it appears that the DEA will remain in its current form for the time being.

In his first speech on media policy on 8 June 2010, the new Culture Secretary, Jeremy Hunt, confirmed that plans to roll out broadband to remote areas that currently do not have high speed internet access will be financed by the money saved by shelving the previous government’s plans for IFNCs to provide replacement regional news services.  Hunt also announced changes to local cross-media ownership rules.  Ofcom has already advised that such rules, which limit the number of newspapers or radio stations that a single company can own should be relaxed, but Hunt has asked Ofcom to go further and take a look at the possibility of removing all those restrictions.

In response to the comments of ITV’s Chairman, Archie Norman, at ITV’s Parliamentary Reception on the current regulatory framework (see above), Hunt said that the “framework in place was developed in a time before Google had a higher turnover than ITV” and that the Government would “look at ways of updating regulation to allow outlets like ITV to continue to produce quality programming”.  Talking of the growing pressures now facing broadcasters, Hunt also made reference to the recent announcement that product placement rules will be overhauled – a move which experts estimate could provide ITV with an additional £100m a year.

To date, produce placement has been prohibited in programmes produced by, or on behalf of, broadcasters that are licensed by Ofcom.  However, in order to enable broadcasters to access new revenue streams, the previous government implemented EU legislation (The Audiovisual Media Services (AVMS) Directive (2007/65/EC amending 89/552/EEC) (the Directive), which permits EU Member States to allow product placement in specific programme genres subject to certain restrictions. The Audiovisual Media Services (Product Placement) Regulations 2010 (the Regulations), which implements the Directive, allows UK television broadcasters to include product placement in programmes produced or commissioned by them. The Regulations came into force on 16 April 2010, however Ofcom licensees will not be able to broadcast programmes which contain product placement until Ofcom has put new rules in place in its Broadcasting Code (Code) to reflect the Regulations (product placement is currently prohibited by Rule 10.5 of the Code, except in imported programming and in films originally made for the cinema, although prop placement is allowed)[2].

On 28 June 2010, Ofcom published its proposals on product placement to reflect this new legislation. The proposals detail the types of programme in which product placement will be allowed (films, TV series, entertainment shows and sports programmes) and not allowed (children’s and news programmes and in UK-produced current and consumer affairs and religious programmes). The proposals include restrictions on the types of products that can be placed (tobacco, alcohol, gambling, food and drink containing high levels of fat, salt or sugar, medicines and baby milk are all banned, as are products and services that are otherwise banned from being advertised on television, such as weapons). The proposed rules also clarify that product placement must not impair broadcasters’ editorial independence and, in line with European legislation, placed products and services must not be promoted, endorsed or featured in an unduly prominent way within programmes. It is intended that viewers would also see a new symbol at the start and end of UK-produced programmes alerting them to any product placement.

In addition to these proposals, Ofcom is also proposing to liberalise some of the rules relating to TV sponsorship and has published separate proposals exploring changes in the regulations of paid-for references to brands and products in radio programmes.

These proposals are bound to be welcomed by commercial broadcasters, as product placement will allow them to access much needed new revenue streams.

This publication is a general summary of the law.  It should not replace legal advice tailored to your specific circumstances. 

If you require further information on public service broadcasting or anything covered in this bulletin please contact Lisa Mayo (lisa.mayo@farrer.co.uk) or your usual contact at the firm on 020 3375 7000.

[1] The Report also dealt with issues such as online copyright infringement.  Please refer to our briefing on this matter.

[2] The Regulations insert a new Schedule 11A into the CA 2003 which provides for new restrictions, prohibitions and conditions to be met by Ofcom in relation to product placement.